Synopsis Report1.docx

Group: A, Roll No: 1785878

A RESEARCH PAPER ON

"AN ANALYTICAL STUDY OF FOREGIN EXCHANGE MARKET" In practice fulfilment of the Requirement of Master of commerce Degree course of Savitribai Phule University of Pune SUBMITTED BY SAMEER VASANT GAWADE ROLL NO: 1785878 M.COM- PART-2, SEM-4 UNDER THE SUPERVISION AND GAIDANCE OF PROF. MANJUSHA KULKARNI SUBMITED TO

DEPARTMENT OF COMMERCE PROGRESSIVE EDUCATION SOCIETY'S MORDEN COLLEGE OF ARTS SCIENCE AND COMMERCE GANESHKHIND, PUNE-16, 2018-2019

RESEARCH PAPER  TITLE: "AN ANALYTICAL STUDY OF FOREIGN EXCHANGE MARKET"  INTRODUCTION: The project is about on foreign exchange market. The aim of this is to understand the concept of the foreign exchange market and know the important of the foreign exchange market in the economy and understand the foreign exchange rate policy. Purpose of the foreign exchange market beyond coordinating payments, I foreign exchange rates and market function as leading economic indicators. Investors and institutions analyze these foreign exchange market trends to create wealth and manage risks. The foreign exchange market is where traders buy and sell currencies. Foreign exchange market are made up of banks, commercial companies, central banks, Investment management firms, hedge funds and retail forex brokers and investors.

 SCOPE: 

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Foreign exchange is important because it helps a country to pay its import bills towards imported goods and services by its citizen or companies. When we import goods and services from other foreign countries, we have to pay theam in their local currency. India contributed very small part in the world currency market about 0.1% of world forex market. The Primary function of a foreign exchange market is the transfer of purchasing power from one country to another and from one currency to another.The international clearing function performed by foreign exchange markets plays a very important role in facilitating international trade and capital movement. The credit function performed by foreign exchange markets also plays a very important role in the growth of foreign trade, for international trade depends to a great extent on credit facilities. Exporters may get pre shipment and post shipment credit. Credit facilities are available also for importers. The Euro dollar market has emerged as a major international credit market. The other important of the foreign exchange market is to provide hedging facilities. Heding refers to covering of foreign trade risks, and it provides a mechanism to exporters and importers to guard themselves against losses arising from fluctuations in exchange rates.

 RELEVANCE:  

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National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies As everyone knows, free markets are important because they voluntarily bring together willing buyers and sellers. Supply and demand are the sine qua non of economics. In fact, so important is their function that, in classical economic theory, a free market occurs only when no single buyer or seller can determine price. Foreign exchange is important for one major reason: it determines the value of foreign investment. A volatile exchange rate discourages foreign investment, as does a high, stable one. A low, stable exchange rate, however, encourages foreign investment, but at the price of the low-valued currency's economy. The forex market is the backbone of international trade and global investing. It is critical to support imports and exports, which are necessary to gain access to resources and to create additional demand for goods and services. Some investors view currencies as an asset class and trade currencies to generate alpha.

 OBJECTIVES:  

To analyse and in-depth stady of foreign exchange market. To analyze exchange rate policy.

 LIMITATIONS:    

The analysis on purely based on secondary data. So any error in the data might also affect the study undertaken. The foreign exchange market is a wide term and different different terms and informations available on internet. Time is limited for this project. Very few studies have taken place in India relating to currency exposure management.

 DEFINITIONS:  The Foreign Exchange Market is a market where the buyers and sellers are involved in the sale and purchase of foreign currencies. In other words, a market where the currencies of different countries are bought and sold is called a foreign exchange market.  According to Investopedia: "The forex market is the market in which participants can buy, sell, exchange, and speculate on currencies"

 The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. -Wikipedia.

 SUGGESTIONS:  All forex traders must ensure that they have selected their brockers with great care. It is vital that the traders objectives, risk tolerance & overall knowledge mesh well with the brokers systems & style.  style A good strategy to have when trading in the foreign exchange market is to have two accounts. One demo account & one real account. You should use proven strategies on your real account & experiment on new ways with your demo account. In foreign exchange market learning does not stop.  exchange While the foreign exchange market runs around the dock and is always open there are strategies in timing that you need to be aware of while trading on foreign exchange understanding foreign exchange hours will help you maximum your strategies by trading when there is hing potential for winning a profit.

 DATA ANALYSIS: 

Types of Forex Market Analysis: 1. Fundamental Analysis: Fundamental analysis is often used to analyze changes in the forex market by monitoring figures, such as interest rates, unemployment rates, gross domestic product (GDP), and other types of economic data that come out of countries. For example, a trader conducting a fundamental analysis of the EUR/USD currency pair would find information on the interest rates in the Eurozone more useful than those in the U.S. Those traders would also want to be on top of any significant news releases coming out of each Eurozone country to gauge the relation to the health of their economies. 2. Technical Analysis: Technical analysis comes in the form of both manual and automated systems. A manual system typically means a trader is analyzing technical indicators and interpreting that data into a buy or sell decision. An automated trading analysis means that the trader is "teaching" the software to look for certain signals and interpret them into executing buy or sell decisions. Where automated analysis could have an advantage over its manual counterpart is that it is intended to take the behavioral economics out of trading decisions. Forex systems use past price movements to determine where a given currency may be headed.

3. Weekend Analysis: There are two basic reasons for doing a weekend analysis. The first reason is that you want to establish a "big picture" view of a particular market in which you are interested. Since the markets are closed and not in dynamic flux over the weekend, you don't need to react to situations as they are unfolding, but can survey the landscape, so to speak. 

Applying Forex Market Analysis: 1. Understand the Drivers: The art of successful trading is partly due to an understanding of the current relationships between markets and the reasons that these relationships exist. It is important to get a sense of causation, remembering that these relationships can and do change over time. 2. Chart The Indexes: It is helpful for a trader to chart the important indexes for each market on a longer time frame. This exercise can help a trader to determine relationships between markets and whether a movement in one market is inverse or in concert with the other. 3. Look For a Consensus In Other Markets:: We can gain a perspective of whether or not the markets are reaching a turning point consensus by charting other instruments on the same weekly or monthly basis. From there, we can take advantage of the consensus to enter a trade in an instrument that will be affected by the turn. For example, if the USD/JPY currency pair indicates an oversold position and that the Bank of Japan (BOJ) could intervene to weaken the yen, Japanese exports could be affected. However, a Japanese recovery is likely to be impaired without any weakening of the yen. 4. Time the Trades: There is a much higher chance of a successful trade if one can find turning points on the longer timeframes, then switch down to a shorter time period to fine-tune an entry. The first trade can be at the exact Fibonacci level or double bottom as indicated on the longer term chart, and if this fails then a second opportunity will often occur on a pullback or test of the support level.

 UNIVERSAL SAMPLE SIZE: Sources of data collection are done by analyzing information of foreign exchange market.

 SOURCE OF DATA COLLECTIONS: For made this project secondary data collection method are used. This stady based on secondary data entire secondary data collected from internet, e-books, Wikipedia, news, blogs, newspapers etc.

 METHOD OF DATA COLLECTIONS:

An Analytical method is used for stady of foreign exchange market. Analysis done by research and review of foreign exchange market.

 LITERATURE REVIEW:

INTRODUCTION: Being the main force driving the global economic market, currency is no doubt an essential element for a country. However, in order for all the countries with different currencies to trade with one another, a system of exchange rate between their currencies is needed; this system, is formally known as foreign exchange or currency exchange. In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.

MEANING AND CONCEPT: The term Foreign exchange implies two things: 1. Foreign Currencies and 2. Exchange Rates  Foreign exchange generally refers to foreign currency, e.g. for India it is dollar, euro, yen, pound etc. &  The main currency used in forex market is the us dollar.  the other part of foreign exchange is exchange rate which is the price of one currency in terms of the other currency.  The forex market is the world's largest financial market in the world.  Over $4 trillion dollars' worth of currency are traded each day. A amount of money traded in a week is bigger than entire annual GDP of United States.

MEANING: Forex is the international market for the free trade of currencies. Traders place orders to buy one currency with another currency According to Hartly Withers: “ Foreign exchange is the art and science of international monetary exchange”

HISTORY: The foreign exchange market (fx or forex) as we know it today originated in 1973. However, money has been around in one form or another since the time of Pharaohs. The Babylonians are credited with the first use of paper bills and receipts, but Middle Eastern moneychangers were the first currency traders who exchanged coins from one culture to another. During the middle ages, the need for another form of currency besides coins emerged as the method of choice. These paper bills represented transferable third-party payments of funds, making foreign currency exchange trading much easier for merchants and traders and causing these regional economies to flourish. From the infantile stages of forex during the Middle Ages to WWI, the forex markets were relatively stable and without much speculative activity. After WWI, the forex markets became very volatile and speculative activity increased tenfold. Speculation in the forex market was not looked on as favorable by most institutions and the public in general. The Great Depression and the removal of the gold standard in 1931 created a serious lull in forex market activity. From 1931 until 1973, the forex market went through a series of changes. 1947 to 1977: Foreign exchange market in India: Historical Prospective: During 1947 to 1971, India exchange rate system followed the par value system. RBI fixed rupee’s external par value at 4.15 grains of fine gold. 15.432grains of gold is equivalent to 1 gram of gold. RBI allowed the par value to fluctuate within the permitted margin of ±1 percent. With the breakdown of the Bretton Woods System in 1971 and the floatation of major currencies, the rupee was linked with Pound-Sterling. Since Pound-Sterling was fixed in terms of US dollar under the Smithsonian Agreement of 1971, the rupee also remained stable against dollar.

SUMMARY:  

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A foreign exchange transaction is an agreement between a buyer and seller that a given amount of one currency is to be delivered at a specified rate for some other currency. A foreign exchange rate is the price of a foreign currency. A foreign exchange quotation or quote is statement of willingness to buy or sell at an announced rate. Quotation can be classified either as European and American terms or as direct and indirect quotes. A cross rate is an exchange rate between two currencies, calculated from their common relationship with a third currency.

 CONCLUSION :

The foreign exchange market is the biggest financial market in the world. The currency derivatives market is highly leveraged. One has to be clued in the global development trends in world trade as well as economic indicators of different countries. These include GDP growth fiscal and monetary policies, inflow and outflow of the currency. Local stock market performance and interest rates.

 BIBLIOGRAPHY: 1. Articles published on internet www.slideshare.com/forexmarket www.investopedia.com/foreignexchange www.wikipwdia.com/foreignexchangemarket www.thebalance.com/foreign-exchange www.yourarticlelibrary.com 2. Book ( A foreign exchange primer) Author: Shani shamah Originally published: May 2003.

Student Signature (Sameer Vasant Gawade)

Guide Signature (Prof. Manjusha Kulkarni)